According to Zappos CEO Tony Hsieh, the hacker had compromised one of the company’s servers in Kentucky and as a result, was able to gain access to internal networks.

Hsieh revealed that while no credit card data or passwords were exposed in the attack (both were stored in encrypted form), the breach did expose other personal information — including names, shipping and billing addresses, phone numbers, and e-mail addresses.

“We are co-operating with law enforcement to undergo an exhaustive investigation,” the CEO wrote in an email to Zappos employees following the attack, adding: “We’ve spent over 12 years building our reputation, brand, and trust with our customers. It’s painful to see us take so many steps back due to a single incident.”

In light of the incident, Zappos, which is well known for its stellar customer service, said it has expired and reset customers’ passwords so they can be reset.

The Amazon-owned company also recommended that customers change their passwords including on any other website where they use the same or similar password.

The full email that Zappos sent out to customers following the breach can be read below. The statement is also posted on the company’s blog.

First, the bad news:

We are writing to let you know that there may have been illegal and unauthorized access to some of your customer account information on Zappos.com, including one or more of the following: your name, e-mail address, billing and shipping addresses, phone number, the last four digits of your credit card number (the standard information you find on receipts), and/or your cryptographically scrambled password (but not your actual password).

THE BETTER NEWS:

The database that stores your critical credit card and other payment data was NOT affected or accessed.

SECURITY PRECAUTIONS:

For your protection and to prevent unauthorized access, we have expired and reset your password so you can create a new password. Please follow the instructions below to create a new password.

We also recommend that you change your password on any other web site where you use the same or a similar password. As always, please remember that Zappos.com will never ask you for personal or account information in an e-mail. Please exercise caution if you receive any emails or phone calls that ask for personal information or direct you to a web site where you are asked to provide personal information.

PLEASE CREATE A NEW PASSWORD:

We have expired and reset your password so you can create a new password. Please create a new password by visiting Zappos.com and clicking on the “Create a New Password” link in the upper right corner of the web site and follow the steps from there.

We sincerely apologize for any inconvenience this may cause. If you have any additional questions about this process, please email us at passwordchange@zappos.com.

Will the recent Zappos security breach slow down your online shopping habits?

Zappos Hacked; 24 Million Customer Accounts Reportedly Compromised is a post from: The Inquisitr

A while back I remember having a conversation with a friend about the state of web business and how it seems that no one wants to build a business that they ever intend to make into a long lasting proposition. It is all about building to be bought rather than building a business intended to last beyond the first serious offer from a larger company.

YouTube is probably the most famous of these buy-out that made waves when Google bought the video service. However they are not alone as the web is littered with absorbed companies of which Zappos was the newest member.

When Amazon bought Zappos for $1.6 billion of Amazon stock many wondered what would happen to the company. While predictions may have varied it seems that at this point in time all is well with the Amazon-Zappos marriage and with Zappos becoming the poster child of successful big company – small company buy-outs.

So it was interesting to read the excerpt of Tony Hsieh’s, founder and CEO of Zappos, book Delivering Happiness on the Inc.com site and hear how; and why, the sale to Amazon came about. As it turns out there were actually two offers from Amazon with the first being made when Zappos was still just getting its feet wet in the start-up world but ended up turning down.

In the intervening years Zappos grew into being a successful business with profit just around the corner and changing the whole landscape of what customer service meant. The problem was that the venture capitalists backing the company didn’t see the company ethos the same way as the people running, and working for, the company. There was a conflict brewing and one that could have changed the company.

Some board members had always viewed our company culture as a pet project — “Tony’s social experiments,” they called it. I disagreed. I believe that getting the culture right is the most important thing a company can do. But the board took the conventional view — namely, that a business should focus on profitability first and then use the profits to do nice things for its employees. The board’s attitude was that my “social experiments” might make for good PR but that they didn’t move the overall business forward. The board wanted me, or whoever was CEO, to spend less time on worrying about employee happiness and more time selling shoes.

The main thing to remember here is that Hsieh didn’t want to sell the company but instead of taking Zappos public and remaining independent he realized that the only way to keep the company unique was to find a buyer.

It was a stressful time for me and Alfred. But we’d gotten through much tougher times before, and this seemed like just another challenge we needed to figure out. We began brainstorming ways that we could get out from under the board. We certainly didn’t want to sell the company and move on to something else. To us, Zappos wasn’t just a job — it was a calling. So we came up with a plan: We would buy out our board of directors.

We figured to do so would cost about $200 million. As we were talking to potential investors, Amazon approached Alfred about buying Zappos outright. Although that still didn’t seem like the best option to me, Alfred sensed that Amazon would be more open than last time to the idea of letting Zappos continue to operate as an independent entity. And we felt that the price Amazon was talking about was too large for us to ignore without potentially violating our fiduciary duty to our shareholders.

Therein lies the big problem of venture capital – they aren’t in for the long haul, especially in complicated financial times. They want to see a return on their investments as quickly as they can and don’t get me wrong, there is nothing wrong with this but it provides little incentive for long term business strategy.

Where Zappos wanted to remain independent and wholly owned by the people who had founded it they were put in a position where they had to sell. It was either that or potentially lose their business.

While venture capital might be the greatest thing to happen to people with a dream it the same doesn’t always apply to people who want to create a business for the long term. Sure it is great to see all the innovation that these start-ups are bringing to our world but at the same time there is way too many me-too ideas getting funded by VCs. It is because of this crap shoot in funding that venture capitalists find themselves thinking in the short term which means take the best and soonest buy-out offer that comes along.

It leaves one wonder just how many of these absorbed companies could have gone on to continue to innovate instead of becoming a nameless entity that once showed promise.

image courtesy of Jake Chessum/Inc.com

Zappos: the poster child for why start-up VCs suck is a post from: The Inquisitr

I first heard about the Amazon acquisition of Zappos, the web’s favorite online shoe store, through Twitter and the exclamations that went along with it. One’s like “Wow!”, or “Didn’t see that one coming” that have gone on to be retweeting fodder.

So I started flagging posts about the acquisition as they appeared in my feed reader – which didn’t take very long, natch. Among all the posts was the letter from Tony Hsieh, CEO of Zappos, on the company blog to company employees letting them all in on what had been a completely secret backroom deal. It was at this point that my bullshit meter started going off.

As Michael Mesnick noted in his post much of Hsieh had to say was an almost painful effort to make sure everyone got the right story about the deal – it wasn’t an acquisition. No folks it was the joining of two divergent corporate cultures in such a way that Amazon would remain as Amazon and Zappos would remain as Zappos. Just ignore that Amazon would be the only shareholder.

Over the next few days, you will probably read headlines that say "Amazon acquires Zappos" or "Zappos sells to Amazon". While those headlines are technically correct, they don’t really properly convey the spirit of the transaction. (I personally would prefer the headline “Zappos and Amazon sitting in a tree…”)

We plan to continue to run Zappos the way we have always run Zappos — continuing to do what we believe is best for our brand, our culture, and our business. From a practical point of view, it will be as if we are switching out our current shareholders and board of directors for a new one, even though the technical legal structure may be different.

Uhm … who is Hsieh trying to kid here?

Look when one company buys up all the shares and other sundry goodies of another company that folks is an acquisition. I don’t care how high up in the tree Hsieh wants Amazon and Zappos to be sitting it doesn’t change the fact that Amazon is Zappos’ new overlord. you know … much like this line in the letter

As mentioned above, we plan to continue to run Zappos as an independent entity. In legal terminology, Zappos will be a "wholly-owned subsidiary" of Amazon.

The other line that got me in the letter was this one

We realized that we are both very customer-focused companies — we just focus on different ways of making our customers happy.

Amazon, a customer focused company?

You mean the company that believes in proprietary hardware and have no compunction about deleting books you bought just because a publisher changed their minds. You mean the company with some of the worst customer service on the web.

Are we talking about the same company here?

But, the big thing for me was the whole WTF! about the acquisition (or is that playing house in the trees like Tarzan and Jane?) was that these are two companies with totally divergent cultures. You know – sort of like the whole Microsoft and Yahoo thing.

Ya, Hsieh is pushing the fact that even though Amazon is now the boss everyone can rest assured that Zappos will be maintaining it’s own culture and core values (I lost count on how many times he repeated those two things in his letter). However I just don’t see this as being a lasting thing because like Doc Searls, who is the only other person I have read so far that is questioning this deal, the two companies might be able to form some kind of synergy as Zappos gets sucked into the Bezos universe but will it last?

So I’m sure there is synergy there. But synergy alone does not a great acquisition make.

I wonder, now that (as the press release says) “Amazon will provide Zappos employees with $40 million in cash and restricted stock units” — in addition to whatever stockholding Zappos employees get in the form of Amazon stock — if Zappos’ soul and mission will survive the acquisition.

I also wonder what kind of hit the whole subject of relationship, which is so highly potentiated (read: absent, though it shouldn’t be), will take.

- Doc Searls :: From Z to A

Just to make sure that I wasn’t just being cranky about the deal for the sake of being cranky I had a quick chat with good friend Mark “Rizzn” Hopkins to see if he saw this as a working deal. I will say that while I don’t agree with him – for the reasons stated – he did at least come up with an interesting take on the whole thing (he has a post up now on SiliconAngle about the deal).

5:39 PM are you getting this Amazon/Zappos deal at all? like it makes as much sense as MS and Y!

5:41 PM Mark: yeah

actually

Zappos is going to be the customer service / social media arm of the company

5:42 PM Amazon is clueless when it comes to monitoring the web for PR purposes.

they still act like a local company.

they’re active in the Seattle media scene, but little else

5:44 PM me: well that may be the case but if it is a lot of people are piling on the separate company and separate core values bullshit thick and heavy .. nothing I have read so far even points that way .. if anything it points elsewhere ..

but I do agree that Amazon is useless that way

While the majority of posts about the deal are either just reprinting the Zappos letter or they are going on about the dollar figures of the deal very few are questioning the ‘synergy’ of the deal. I still don’t see how Zappos is going to be able in the long term to maintain the same culture and ethos that has made them famous in the social media circles. Like Michael Mesnick said

If I had a dollar for every time an acquired company insisted that the acquirer was going to keep them running exactly the same as before, I’d be a lot wealthier. And if I had to give back that dollar for every time that wasn’t true, I’d be giving all that money back. This is an acquisition, no matter how Zappos is trying to paint it.

I’d be willing to bet that within a year of the deal being finalized Zappos will either be as Mark suggests, the social media arm of Amazon, or it will be just a shell of its former self.

Amazon and Zappos – let’s see how high we can pile the crap is a post from: The Inquisitr

In a new blog posting, Hsieh confirms he had to let 8 percent of his crew go and may be closing some of his outlet stores as well. The underlying reason, Hsieh explains, is a cutting back of expenses by its investor, Sequoia Capital.

Zappos is paying all the affected employees through the end of the year, and longer for veteran workers who had been on-board for three or more years. The company is also reimbursing the cost of COBRA — the short-term health insurance available for people between jobs — for six months for those affected as well. Hsieh says that move will actually increase his costs for 2008. Despite the unfortunate reality of the situation, we commend him for this honorable move. It’s a far more compassionate gesture than the phony, PR-driven moves some other CEOs have made (Gannett layoffs, anyone?).

The full memo sent to employees follows.

To all Zappos employees:

Today has been a tough, emotional day for everyone at Zappos. We made the
hard choice of laying off about 8% of our employees. The layoffs will
affect almost every single department at Zappos. In addition, we are also
looking at closing some of our brick and mortar outlet stores in Nevada
and Kentucky.

This is one of the hardest decisions we’ve had to make over the past 9.5
years, but we believe that it is the right decision for the long term
health of the company. The rest of this email will explain why…

We feel fortunate that we have Sequoia Capital as an investor who had the
foresight to see the ramifications of the tough economic times that lie
ahead for all of us. On October 7, Sequoia held a meeting for all of their
portfolio companies (including Zappos), with one very clear message: Cut
expenses as much as possible and get to profitability and cash flow
positive as soon as possible.

Here is a link to an article that talks about the Sequoia meeting:

http://gigaom.com/2008/10/08/sequoia-rings-the-alarm-bell-silicon-valley-in-trouble/

Jason Calacanis also has a well-written email that talks about avoiding
the “death spiral”, which I highly recommend reading:

http://calacanis.com/2008/10/28/good-news-for-people-who-hate-bad-news/

Fortunately for Zappos, we’re in a much better position than many other
companies. Unlike many other companies, we are still growing and already
profitable and cash flow positive.

And we are also fortunate that we have a revolving line of credit from
Wells Fargo, US Bank, and Keybank. This line of credit has given us a lot
of financial flexibility. However, given the current economic uncertainty,
we believe it’s prudent to reduce our reliance on debt financing.

We’ve decided the right thing to do for the company is to be proactive
instead of reactive. We are proactively cutting back some of our expenses
today so that we can take care of our employees properly, instead of being
reactive and waiting until we are forced to cut expenses.

Because we are still growing and are already profitable, we do not have to
take as drastic of a step as most other companies of our size. Last year,
we did $840 mm in gross merchandise sales, and this year we are
forecasting to do about $1 billion in gross merchandise sales. However,
when we first put together our 2008 plan at the end of 2007, we were
expecting our gross merchandise sales to be even higher than $1 billion.

Because of all this, we are reducing our staff by 8%, but because we are
being proactive instead of reactive about it, we are able to take care of
our employees and offer them more than the standard 2 weeks severance (or
no severance) that most other companies are giving.

We are offering to pay each laid-off employee through the end of the year
(about 2 months), and offering an additional amount for employees that
have been with us for 3 or more years.

In addition, because our regular health benefits cover 100% medical,
dental, and vision for employees and 50% for spouses and dependents, we
decided to offer to reimburse laid-off employees for up to 6 months of
COBRA payments.

In doing all of this to take care of laid-off employees, we expect that it
will actually increase, not decrease, our costs for 2008, but we feel this
is the right thing to do for our employees. It will put us in the position
of having a lot more financial flexibility in being able to respond to
potential changes in the economy in 2009.

Ecommerce growth has slowed compared to its growth rate a year ago, but
the good news is that even in this tough economic environment, ecommerce
overall is still growing.

Within the footwear category, we are the online market leader. When times
are tough, the strongest players in any market have an opportunity to gain
even more market share, even if overall growth may be slower.
Historically, we have actually grown faster than the overall ecommerce
market, and we anticipate for that to continue in 2009.

For the rest of 2008 as well as for 2009, we anticipate continuing to grow
year over year. Our current forecasts are that we will continue to be
profitable and cash flow positive, as long as we are proactive instead of
reactive in managing our business and financials.

I know that many tears were shed today, both by laid-off and non-laid-off
employees alike. Given our family culture, our layoffs are much tougher
emotionally than they would be at many other companies.

I’ve been asked by some employees whether it’s okay to twitter about
what’s going on. Our Twitter policy remains the same as it’s always been:
just be real, and use your best judgement.

These are tough times for everyone, and I’m sure there will be many follow
up questions to this email. If you have any questions about your specific
job or department, please talk to your department manager. For all other
questions, comments, or thoughts, please feel free to email me.

Tony Hsieh, CEO

Zappos Layoffs Update: 8 Percent of Staff Cut is a post from: The Inquisitr

“Sorry to everyone who got laid off,” one worker writes. “All my Zappos friends who got bad news today, keep your head up. Bigger and better things await you,” says another. “Much love to all my friends…you’re still family no matter where you end up! Keep your heads up!” a third posting states.

It’s not clear how many people were let go, though CEO Tony Hsieh did say the following (through, of course, his Twitter account):

“Very emotional day for everyone at Zappos. I’ll be sending out an update later today with details of what’s going on.”

Zappos has more than 400 employees on Twitter. Its CEO has 17,323 followers and is ranked as the #31 most followed Twitter user across the service.

Zappos Layoffs Update: 8 Percent of Staff Cut

Zappos Layoffs Revealed Through Twitter is a post from: The Inquisitr

People have been wondering for thousands of years how to use Twitter for marketing.

Some corporations aren’t even blogging well, but others have become web 2.0 powerhouses. Zappos is one of the leaders and is hitting it out of the park with Twitter.

Zappos has 442 employees on Twitter. Their website boasts the subdomain Twitter.Zappos.com, which includes:

• A “reputation feed” of all tweets about Zappos,
• A feed of all their employees’ tweets,
• A list of Zappos Twitterers, and
• A ranking of who at Zappos has the most followers.

Twitter CEO Tony Hsieh is the #1 Zappos Twitterer with 10,604 followers. He is ranked the 42nd most followed of all Twitter users.

Tony graciously allowed me to interview him via email while he globe-trotted. No, I don’t mean basketball.

@briancarter: Tony, thanks for agreeing to be interviewed! Very impressive… I can’t believe you have 442 Zappos employees on Twitter! Are you incentivizing them to do that in some way other than their Zappos “Twitter Rank”?


@zappos (Tony): Employees are not required to Twitter and are not given any guidelines except to use their best judgement. Some employees enjoy twittering, and others do not. We do offer Twitter classes at Zappos, but they are optional.

@briancarter: Do you tell them to interact with Twitterers other than Zappos employees?

@zappos (Tony): When Zappos employees leave the office, most of them leave to go hang out with other Zappos employees. Twitter is a great way for employees to meet up with each other and get to know each other from a different perspective.

@briancarter: Come to think of it, if there are 442 Zappos employees on Twitter, how come all your Zappos employees don’t have at least 442 followers?

@zappos (Tony): It’s just to each employee to choose who he and she wants to follow, so
most people do not choose to follow every single Zappos employee.

@briancarter: What percentage of your traffic is it and what percentage of your sales can you tie it to, even as one touchpoint among others? Or do you feel Twitter is more of a PR and branding tool and the results are indirect?

@zappos (Tony): We’re not really looking at Twitter as a way of driving additional traffic — it’s really just a great way for employees and customers to see that we are real people, and it makes the relationship a lot more personal, which is what we ultimately want people to feel about the Zappos brand.

@zappos (Tony): Our #1 priority as a company is our company culture. We believe that if we get the culture right, most of the other stuff (like great customer service) will fall into place on its own.

Brian Carter is Director of SEO, PPC, and Social Media at Fuel Interactive, as well as a stand up comedian and humorist. Brian will be speaking on Social Media at PubCon 2008.

(photo credits: Scott Beale / Laughing Squid)

Twitter Marketing: An Interview with Zappos CEO, Tony Hsieh is a post from: The Inquisitr